In a move that many financial commentators have been predicting for some time, following several months of historically low interest, the rates being charged on some of the cheapest fixed rate mortgages are now increasing. This increase is an important reminder to buyers that they must consider the long-term costs involved with purchasing a property as well as the immediate costs such as hiring removals vans.
The mortgages being affected are those offering two-year deals fixing interest at the cheapest rates. The rates have been increasing for people who are borrowing between 60 and 90 percent of the property value, according to a study conducted by Moneyfacts. Borrowers are experiencing fairly significant rises, with those having enjoyed two year fixed rates of 1.89% on mortgages obtained with a 25% deposit now likely to be facing increased rates of about 1.98%. Those who have had their interest rated fixed for five years rather than two are also likely to see a rise when their rates change.
Moneyfacts attributes the current increase in interest rates to a change in the Swap rates, which are used to determine how much interest should be charged on mortgages. Swap rates have been increasing, in response to concerns about when the Bank of England will raise its own rates, and mortgage rates are now following them up. Mortgage rates are therefore pre-emptively reacting to the expected Bank of England rate rise, which is expected to happen before the end of the year.
The rises are affecting borrowers whose mortgages were previously fixed at the lowest rates, while those who are seeking the cheapest rates for new mortgages are also likely to be offered slightly higher rates. The effect is strongest for those with low loan to value ratios. Buyers who are planning removals and seeking new mortgages with large deposits are actually being offered slightly more expensive rates than those first time buyers with small deposits who are still receiving offers of competitive rates. As mortgage rates rise for new buyers, it may be important for borrowers to seek savings elsewhere, by shopping around for the best prices for removals services, utilities and other costs associated with moving into a new home.